Slowing home sales due to high mortgage rates has resulted in lower demand for home improvement or remodeling projects. However, with inflation appearing to have peaked, the home improvement industry should rebound soon. Therefore, it could be wise to invest in beaten-down home improvement stocks Arhaus (ARHS), Tile Shop (TTSH), Kingfisher (KGFHY), Haverty Furniture (HVT), and Builders FirstSource (BLDR), which are well-positioned to rebound soon. Let’s discuss.
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Home improvement companies benefited significantly from surging consumer interest in renovation and remodeling activities amid the pandemic-led remote lifestyles. However, sowing home sales this year with soaring mortgage rates amid the multi-decade high inflation is hurting the industry’s growth. Many home improvement companies have witnessed sales declines lately.
However, since many economists believe inflation has peaked, the demand for homes and home improvement should rebound soon with declining mortgage rates. Moreover, soaring DIY décor trends should help home improvement companies to stay afloat. The global do-it-yourself (DIY) home improvement retailing market is expected to grow at a 4.4% CAGR to $1.28 trillion by 2030. The global home improvement market is expected to grow at a 6.4% CAGR to reach $514.90 billion by 2028.
Therefore, it could be wise to invest in beaten-down home improvement stocks Arhaus, Inc. (ARHS), Tile Shop Holdings, Inc. (TTSH), Kingfisher plc (KGFHY), Haverty Furniture Companies, Inc. (HVT), and Builders FirstSource, Inc. (BLDR), which possess sound fundamentals and solid growth prospects.
Arhaus, Inc. (ARHS)
ARHS operates as a lifestyle brand and premium retailer in the home furnishings market, providing merchandise assortments across various categories, including furniture, lighting, textiles, décor, and outdoor. The company offers its products through an omnichannel model comprising showrooms, an e-commerce platform, a catalog, and in-home designer services. As of December 31, 2021, it operated through a network of 71 traditional showrooms, 5 Design Studios, and 3 Outlets, as well as 58 showrooms with in-home interior designers.
For its fiscal 2022 first quarter ended March 31, 2022, ARHS’ net revenue increased 43.5% year-over-year to $246.30 million. The company’s gross profit came in at $97.72 million, representing a 38.9% year-over-year improvement. Its income from operations came in at $22.87 million for the quarter, indicating a 102.7% rise from the prior-year period. As of March 31, 2022, the company had $148.84 million in cash and cash equivalents.
ARHS surpassed Street EPS estimates in the trailing three quarters. The consensus revenue estimate of $1.17 billion for fiscal 2022 ending December 31, 2022, represents a 47.1% rise from the prior-year period. The company’s EPS is expected to grow at a rate of 7.9% per annum over the next five years.
The stock’s 0.82x forward EV/Sales is 26% lower than the 1.11x industry average. In terms of forward Price/Sales, ARHS is currently trading at 0.68x, which is 28.8% lower than the 0.95x industry average. Over the past week, the stock has lost 5.3% to close yesterday’s trading session at $5.57, down 61.9% from its 52-week high of $14.95.
ARHS’ POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Sentiment and a B grade for Quality. Click here to see the additional ratings for ARHS’ Growth, Stability, Value, and Momentum. ARHS is ranked #15 of 63 stocks in the Home Improvement & Goods industry.
Tile Shop Holdings, Inc. (TTSH)
TTSH is a specialty retailer of manufactured and natural stone tiles, setting and maintenance materials, and related accessories. The company offers marble, travertine, granite, quartz, sandstone, porcelain, glass, cement, wood, and metal tiles. It sells its products through its website and offers delivery services through third-party freight providers.
For its fiscal 2022 first quarter ended March 31, 2022, TTSH’s net sales increased 11.3% year-over-year to $102.47 million. The company’s gross profit came in at $66.85 million, indicating a 4.1% rise from the prior-year period. It had $13.46 million in cash and cash equivalents as of March 31, 2022.
Analysts expect the company’s revenue to improve 5.2% year-over-year to $389.97 million for fiscal 2022, ending December 31, 2022. TTSH’s EPS is expected to grow at a rate of 20% per annum over the next five years.
The stock’s 0.90x forward EV/Sales is 19% lower than the 1.11x industry average. In terms of forward Price/Sales, TTSH is currently trading at 0.58x, which is 39% lower than the 0.95x industry average. Over the past week, the stock has lost 4.2% to close yesterday’s trading session at $4.37, down 50.9% from its 52-week high of $8.90.
TTSH’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has an A grade for Sentiment and Quality. Click here to see the additional ratings for TTSH’s Stability, Value, Growth, and Momentum. TTSH is ranked #4 in the same industry.
Kingfisher plc (KGFHY)
Headquartered in London, the U.K., KGFHY supplies home improvement products and services through home improvement specialist stores and e-commerce internationally. Also, the company offers property investment, finance, digital, sourcing and franchising, and IT services. It operates approximately 1,470 stores in eight countries across Europe under the B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint, and Koctas brands.
On May 16, 2022, KGFHY’s Screwfix business, a multi-channel retailer of trade tools, accessories, and hardware products, announced to open its 800th store in June and expand its footprint through 80 new stores across the UK and the Republic of Ireland by the end of its fiscal 2023. This expansion will help Screwfix witness rising demand in the coming months.
For its fiscal 2022 full year ended January 31, 2022, KGFHY’s sales increased 6.8% year-over-year to £13.18 billion ($16.45 billion). The company’s gross profit came in at £4.94 billion ($6.16 billion), up 7.9% from the prior-year period. Its operating profit came in at £1.14 billion ($1.43 billion) for the quarter, representing a 24.7% rise from the year-ago period. KGFHY’s adjusted net earnings came in at £737 million ($919.65 million) for the quarter, indicating a 22% year-over-year improvement. Its adjusted EPS came in at 35.2 pence, representing a 22.6% rise from the year-ago period.
The stock’s 0.52x forward EV/Sales is 53% lower than the 1.11x industry average. In terms of forward Price/Sales, KGFHY is currently trading at 0.40x, 57.6% lower than the 0.95x industry average. Over the past week, the stock has lost 5.6% to close yesterday’s trading session at $6.19, down 40.9% from its 52-week high of $10.47.
KGFHY’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
It has an A grade for Value and a B grade for Stability and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for KGFHY’s Momentum, Growth, and Sentiment here. KGFHY is ranked #14 in the same industry.
Haverty Furniture Companies, Inc. (HVT)
HVT is a specialty retailer of residential furniture and accessories, custom upholstery products, eclectic looks, and mattress product lines. The company also offers financing through a third-party finance company and an internal revolving charge credit plan. It distributes primarily through retail stores and websites.
HVT’s net sales for its fiscal 2022 first quarter ended March 31, 2022, increased 1% year-over-year to $238.95 million. The company’s gross profit came in at $140.96 million, representing a 4.4% year-over-year improvement. Its pre-tax income came in at $25.72 million for the quarter, up 1.4% from the year-ago period. HVT’s EPS increased 6.7% year-over-year to $1.11. The company had $162.34 million in cash and cash equivalents as of March 31, 2022.
The company surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. Its EPS is expected to grow at a 13.1% rate per annum over the next five years.
HVT’s 0.54x forward EV/Sales is 51.5% lower than the 1.11x industry average. In terms of forward Price/Sales, the stock is currently trading at 0.47x, 50.9% lower than the 0.95x industry average. Over the past three months, the stock has lost 3.3% to close yesterday’s session at $27.73, down 42.9% from its 52-week high of $48.54.
HVT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has an A grade for Value and Quality and a B for Sentiment. Click here to see the additional ratings for HVT (Momentum, Stability, and Growth). The stock is ranked #3 in the same industry.
Builders FirstSource, Inc. (BLDR)
BLDR manufactures and supplies building materials, manufactured components, and construction services to professional homebuilders, sub-contractors, remodelers, and consumers. The company also distributes dimensional lumber and lumber sheet goods, millwork, windows, interior and exterior doors, and other building products. It offers a range of construction-related services, including professional installation, turn-key framing, and shell construction, spanning all its product categories.
On January 5, 2022, BLDR acquired National Lumber, the largest independent building materials supplier in New England. National Lumber’s diverse building materials and service offerings, including prefabricated millwork components and a robust R&R mix, will add even more depth to the value-added solutions BLDR customers rely on. This acquisition should strengthen BLDR’s presence in New England.
BLDR’s fiscal 2022 first-quarter net sales increased 36.1% year-over-year to $5.68 billion. The company’s gross profit came in at $1.83 billion, indicating a 71.3% year-over-year improvement. Its income from operations came in at $863.81 million for the quarter, representing a 248.4% rise from the year-ago period. While its adjusted net income increased 136.5% year-over-year to $700.80 million, its adjusted EPS grew 174.7% to $3.90. As of March 31, 2022, the company had $281.80 million in cash and cash equivalents.
Analysts expect BLDR’s EPS to be $12.17 for fiscal 2022 ending December 31, 2022, representing a 17.9% year-over-year improvement. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $21.65 billion in the same fiscal year represents an 8.8% year-over-year improvement. The company’s EPS is expected to grow at an 18.8% rate per annum over the next five years.
The stock’s 0.69x forward EV/Sales is 58% lower than the 1.65x industry average. In terms of forward Price/Sales, BLDR is currently trading at 0.53x, which is 61.3% lower than the 1.36x industry average. Over the past week, the stock has lost 1% to close yesterday’s trading session at $27.73, down 24.6% from its 52-week high of $86.48.
BLDR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Value, Growth, Momentum, Sentiment, and Quality. Click here to see the additional ratings for BLDR’s Stability. BLDR is ranked #2 in the same industry.
ARHS shares closed at $5.53 on Friday, down $-0.04 (-0.72%). Year-to-date, ARHS has declined -58.26%, versus a -17.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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